BP reported its first annual loss in a decade after a 96 per cent drop in fourth-quarter profit as the UK oil major continues to reel from the hit to energy demand from the pandemic.

Underlying profit on a replacement cost basis — the measure of income tracked most closely by industry analysts — was $115m in the three months to December 31.

This fell short of analyst expectations of a $370m profit, according to a company-compiled estimate, and compares with $2.6bn in the same period the year before.

Bernard Looney, chief executive, said it had been “a tough quarter at the end of a tough year”.

It has been a brutal time for the industry, with lockdowns and travel bans causing big drops in earnings.

For the full year, BP slumped to a loss of $5.7bn, from a $10bn profit in 2019, because of the collapse in energy prices, a writedown in the value of oil and gas assets by billions of dollars and depressed demand.

The group said quarterly performance had been “significantly” hit by lower fuel sales and refining margins. It also blamed weaker gas marketing and trading results, and higher exploration write-offs.

“The weather was colder in Asia than we had thought and warmer in America than we had thought,” Mr Looney said in an interview. “Our traders were caught.”

BP, which returned to profit in the third quarter, had already warned of a volatile outlook.

Oil demand is anticipated to rebound in 2021 and it expects to benefit from higher gas prices in future. But fuel sales and refinery margins are forecast to remain under pressure.

The price of crude oil has recovered from last April’s lows — below $20 a barrel — helped by a nascent market recovery and the rollout of vaccinations. Although Brent crude is again above $55 a barrel, it is far from the $70 level of a year ago.

“I think there are issues about mutations and issues about vaccine rollout . . . but, at the same time, we have vaccines so there will be a recovery,” said Mr Looney. “How long it will take, time will tell.”

The recent oil rebound has helped BP’s share price, which last year fell to multi-decade lows. But the shares fell more than 3 per cent after the results were published on Tuesday.

The pandemic is accelerating a transformation of the group under Mr Looney, who took up his role in February 2020 and promised to turn BP into a net-zero emissions company by 2050.

BP is shrinking production in the coming decade, selling assets and reshaping its business for a lower-carbon future, which includes restructuring the company and cutting 10,000 jobs.

It cut its dividend in August for the first time since the Deepwater Horizon disaster in 2010, to 5.25 cents, which it has since maintained including in the latest quarter.

It has also slashed capital spending by billions of dollars, cut costs dramatically, secured new credit lines, issued bonds and stalled exploration activity. It expects capital expenditure to be $13bn in 2021.

It also wants to sell $25bn in assets by 2025 to cut debt and pay for green energy investment.

The company said net debt — which stood at $39bn in the fourth quarter — would increase in the first half of 2021, but it still aimed to reach its $35bn target as early as the end of this year.

BP announced this week the sale of a 20 per cent stake in an Omani gas block for $2.6bn.